Previous rapid growth will be severely distressed
Yes, oil’s decline will hurt Texas. But Texas is a big state with a somewhat-well-diversified manufacturing base and other industries that should cushion the blow. In 2013, only about 14 percent of the economic growth in Texas was directly related to mining. Depending on the multiplier effect, the slowdown should be manageable. With one of the nation’s largest economies, Texas should be able to absorb much of the blow, though certain areas of previous rapid growth will be severely distressed.
The “multiplier effect” is critical for a thorough understanding of how severely. The multiplier is how much the indirect effects of oil money help, or hurt, the broader economy. And there is not a consensus on precisely how much that is. Estimates for the U.S. oil multiplier range from the relatively modest 1.2x to a powerful 2x and can even vary from field to field. It is difficult to be confident in an exact figure, but the takeaway is the same, regardless—there are broader effects on the real economy than simply the exact contribution of mining to the economy. If all the Texas economy needed to overcome was a downturn in oil, the 14 percent growth contribution would only be a small bump. However, if the multiplier turns out to be closer to 2x than 1x, the economics of lower oil become far more interesting.
Even with a high multiplier, Texas will only see about a 1-2 percent headwind in its GDP growth. North Dakota would be far more affected. Of its nearly 10 percent growth rate, 3.6 percent—or 37 percent of its growth—comes from mining. There is no question the decline in oil may bring the North Dakota economy back down to earth. After growing its economy by 20.3 percent in 2012 and 9.7 in 2013, it could use a breather. And a prolonged decline in production and price would herald a severe decline in GDP for the State.